No DNA sequence homologous to the penDE gene of Penicillium chrysogenum was found in the genome of three different strains of Cephalosporium acremonium. The pcbC-penDE gene cluster of P. chrysogenum complemented the isopenicillin N synthase deficiency of C. acremonium mutant N2 and resulted in the production of penicillin, in addition to cephalosporin, in cultures supplemented with phenylacetic acid. The penicillin formed was identified as benzylpenicillin by HPLC and NMR studies. The penDE gene of P. chrysogenum is expressed in C. acremonium forming a transcript of 1.15 kb. The transcript is processed and translated in C. acremonium resulting in the formation of acyl CoA: isopenicillin N acyl transferase. When the penDE gene was introduced into a cephalosporin producing strain, the total titre of beta-lactam antibiotics comprised distinct proportions of penicillin and cephalosporin in different transformants. Analysis of the hybridization patterns of the DNA of C. acremonium transformed with the pcbC or penDE genes indicated that integration occurs by non-homologous recombination.